The stark reality of the U.S. is that people born poor are likely to remain that way. But the exact reasons income inequality perpetuates across generations is tricky to pin down.
A pair of economists may have found one of the links, however. It turns out that poor students who grew up in areas with high income inequality are significantly more likely to drop out of high school than students who grew up in areas with less inequality.
“Greater educational attainment is a key pathway by which an individual from a low-income background can move up in the income distribution and obtain a middle-class life, or potentially even higher,” write the economists Melissa Kearney at the University of Maryland and Phillip Levine at Wellesley College. Their research is being presented this week at the Brookings Institution. “If children from low-income backgrounds are responding to large gaps between their economic reality and middle-class life by dropping out of school, that would perpetuate economic disadvantage and impeded rates of upward mobility.”
They found the size of the gap between households at the 50th percentile and those at just the 10th percentile helps predict whether boys will drop out of high school. The reason for this, they suspect, is that these boys believe that even attaining a middle-class standard of living may be beyond their reach.
Take boys whose mothers dropped out of high school. About 25% of these boys drop out of high school if they’re in a state with high inequality. By contrast, just 19% of boys in the same circumstances drop out if income inequality is low.
Few decisions are as economically damaging as dropping out of high school. High-school dropouts have dramatically lower earnings and dramatically higher rates of unemployment. Those who’ve completed high school earn, on average, about $200 more every week. College graduates earn more than double high-school dropouts on average.
By this measure, finishing high school is worth nearly half a million dollars over a lifetime. People with higher levels of education are also dramatically less likely to be unemployed, especially during economic downturns. Throughout the recession, nearly one out of every six high-school dropouts were unemployed, compared with just one in 20 college grads. High-school dropouts in the best of times have higher unemployment rates than college graduates did in 2009, during the longest and deepest recession since the Great Depression.
Ms. Kearney and Mr. Levine’s research paper carefully seeks to establish that income inequality, rather than other factors such as race or school performance, is what’s driving the gap. That’s indeed what they find, that at least some boys are dropping out “not because they are struggling academically, but potentially because they perceive a lower return from staying in school.” In other words, people who have the merit to complete high school and continue on to college are dropping out because they don’t realize how much it might be worth to them to stay in.